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Litigation Prevention Tips for Small Businesses

With Small Business Saturday having just past, I thought it would be appropriate to discuss some litigation prevention tips for small businesses. As we’ve all learned, Small Business Saturday is a designated shopping day that has developed over the past few years where consumers are encouraged to support their local small businesses on the Saturday directly following Thanksgiving and Black Friday.

While these general tips are helpful to all sized businesses, small local businesses are often more vulnerable to the costs associated with litigation as a single legal matter can prove to be a very real expense in addition to consuming huge amounts of time for the small business’s management team. As an initial matter, to help curtail future litigation costs, it is recommended that small businesses develop a close relationship with an attorney for its business needs. This will serve to not only ensure best practices from a business sense, but will also ensure that business decisions are being made with a legal eye on limiting risks on issues that could make the business more susceptible to legal action.

Secondly, I always recommend that small businesses work closely with an insurance broker (in addition to their business attorney and accountant) to learn of various coverages available and to make educated business decisions as to whether those coverages (and associated premiums) are a worthwhile expense in light of the small business’s practices and experience. For example, while general liability and catastrophic loss coverages are typical, many small businesses are either unaware or unwilling to invest in employment practices liability insurance and then find themselves incurring significant legal fees defending against both valid and frivolous employment discrimination lawsuits. Proper insurance coverage can protect a small business in this regard by having their legal fees and any potential adverse judgment paid for by their insurance carrier.

Finally, with regard to outstanding account receivables (whether from vendors, suppliers, or customers), small businesses should consider consulting an attorney and exploring whether that attorney would be willing to pursue collection matters on a contingency fee basis. A contingency fee structure could serve to allow the small business to potentially recover obligations that it may have otherwise written off without the small business having to advance legal fees to its attorney.

With these general tips, small businesses can focus on their business operations while limiting their exposure to hefty legal fees in future.

Attorney Samuel Cohen is a commercial litigator, representing companies and small businesses in legal disputes.